ERC to determine real cost of Hydropower projects; New policies unveiled for tariffs, PPA uniformity, and power market

KATHMANDU: The Electricity Regulatory Commission (ERC) of Nepal has unveiled its Annual Plan and Programs for the fiscal year 2082/83 (2025/26), aiming to address a longstanding concern in the energy sector: the actual production cost of hydropower projects. Amid rising investment interest and project implementation discrepancies, the Commission is set to conduct an in-depth study to determine cost benchmarks, enabling more reliable tariff-setting, transparency, and regulatory uniformity across government, private, and foreign-funded projects.

Hydropower Cost to Be Scientifically Benchmarked

ERC Chairperson Dr. Ram Prasad Dhital stated that while the estimated average cost of electricity production per megawatt (MW) is around NPR 200 million, the figure lacks reliable and standardized data. “There’s a noticeable variance between the cost of private-sector and government-built projects,” Dhital explained. “To overcome this discrepancy, we will establish a ‘cost benchmarking’ model, factoring in geographical variations, infrastructure availability, river basin locations, and technological efficiencies.”

The plan seeks to identify cost variations across major river basins—Mechi, Koshi, Bagmati, Trishuli, Kaligandaki, Karnali, Seti, and Mahakali—by analyzing parameters such as dam-to-powerhouse distance, headworks height, water flow volume, and equipment efficiency. “Our goal is to show a range of costs that stakeholders can expect in specific regions,” said Dhital.

Uniformity in PPA Terms across All Project Types

The Commission also plans to standardize the Power Purchase Agreement (PPA) terms between the government and developers across the foreign, private, and public sectors. Currently, PPA agreements vary widely, contributing to regulatory inconsistencies and investor confusion.

“Moving forward, we aim to bring uniformity in PPA structures,” stated Chairperson Dhital. “We will review the existing templates to match the current technical, legal, and financial environment and propose necessary amendments related to project structure, risk sharing, pricing models, and contract duration.”

Study to Explore Establishing a Wholesale Electricity Market

In a significant step toward market liberalization, the Commission announced a feasibility study on creating a wholesale electricity exchange market in Nepal. The objective is to promote competition, enhance private sector participation, and secure long-term electricity supply.

As per the annual plan, the study will assess the legal, institutional, and technological prerequisites to initiate a competitive wholesale market. It will also explore possible market models and propose a phased implementation strategy.

Favorable PPA Tariffs for Storage-Based Projects

To promote storage and reservoir-based hydropower projects, which are vital for energy stability, the Commission will determine promotion-friendly and transparent tariff rates. It will conduct technical, economic, and regulatory studies to design a pricing system that attracts more investment into such projects.

Stronger Grounds for Power Cuts & Load Shedding Protocols

In a move aimed at protecting consumer rights, the Commission has introduced a policy to clearly define the grounds under which electricity service providers can reduce or cut electricity supply. “Electricity providers will now need to justify cuts with proper reasons, balancing supply challenges with consumer service expectations,” states the ERC.

Transmission Line Rental Charges to Be Regulated

The Commission will also determine clear wheeling and transmission line usage charges. With the open access policy gaining traction in Nepal’s energy sector, a cost-reflective and transparent pricing structure is essential for attracting investment and facilitating electricity trade through national transmission infrastructure.

3-Tier Grievance Redress System for Electricity Consumers
To ensure effective handling of consumer complaints, the ERC will develop a three-tier grievance redress mechanism:

First Level – Initial contact and issue registration with the electricity service provider.

Second Level – Satisfactory resolution expected from the service provider.

Third Level – Escalation to a regulatory platform if unresolved.

Implications for Energy Market, FDI, and Policy Reforms

The ERC’s 2082/83 plan is a comprehensive roadmap that touches on crucial issues like energy pricing transparency, PPA standardization, infrastructure usage, and wholesale market liberalization—all of which are vital for Nepal’s electricity market development and for attracting foreign direct investment (FDI) in hydropower and clean energy.

These moves are expected to boost investor confidence, especially amid growing regional electricity trade with India and Bangladesh, and ongoing domestic debates around regulatory bottlenecks and inconsistent energy policy.